February 2012

Delegation to the Government for the Separation of Ordinary and Speculative Banking Activities

Sen. Oskar Peterlini (right) introduced a resolution, following the G8 Summit in L’Aquila, Italy, calling on the Italian government to adopt a New Bretton Woods system. He is pictured here with (left to right:) Sen. Alberto Maritati, LaRouche representative Andrew Spannaus, and Lyndon LaRouche, at the Italian Senate, June 17, 2009.

Honorable Senators, The global economic crisis that exploded in 2007-2008 continues to produce victims. In the current period, Italy and all of Europe are living through a new phase of the breakdown of the global financial system, that is the result of many years of policies that have penalized productive activities while favoring an unprecedented expansion of the casino on international financial markets. Now families and businesses are paying for wrong decisions made at the macroeconomic level, that risk undermining the very fabric of our society.

Unfortunately, we must admit that, starting with the dramatic months at the beginning of the crisis, and in the numerous international summits from 2009 on, the opportunity to adopt strong measures that would have represented a clean and effective break with past policies has not been taken: such measures would certainly include a return to the separation of banking activities, typified by the famous Glass-Steagall Act passed under the presidency of Franklin Delano Roosevelt in the United States, who in 1933 put an end to the financial excesses at the root of the Great Depression.

The Glass-Steagall principle remained in effect in western countries, including ours, until the nineteen-nineties. It established the clear separation between commercial banks, which accept deposits from citizens and issue loans to individuals and businesses, and investment banks, the institutions that operate in the financial markets, through issuing and trading stocks, bonds, and speculative instruments in general.

Starting in the nineties, all of these banking functions were joined under the same roof: giants now exist that de facto make even local economies dependent on highly speculative and risky global financial flows. The consequence of the abrogation of the Glass-Steagall principle is that the path has been marked straight towards catastrophe, and if decisive action is not taken, the economic and social situation risks getting much worse.

Since the explosion of the derivatives bubble - the hyper-speculative instruments that by now are completely decoupled from productive investments, diverting resources from the real economy to a veritable global casino - the risk of failure of the large banks has led governments and central banks to provide a series of emergency bailouts. We are continuously told that those interventions are necessary to avoid a total meltdown, but the situation only gets worse, because while stratospheric amounts are injected into the world of finance (amounts counted in trillions of dollars and euros), the resources do not make it to normal people, to families, to small and medium-sized enterprises.

All of this takes place because the bailouts were granted without conditions, the big banks were not asked to change their behavior, incisive reforms of the financial system were not implemented.

Until just a few months ago, Italy might have thought that it could avoid the harshest effects of the international crisis, or be affected only marginally, due to a system dominated less by finance (at both the practical and legislative levels) but now we can wait no longer: the system must be changed as soon as possible.

Italy can pave the way for other countries: we should return to a division of the banks to guarantee that normal people no longer have to pay for global speculative bubbles. We must establish clear rules for a separation of ordinary (commercial) banks from those that operate on the speculative markets (investment banks), to serve as a model internationally. These measures are already under discussion in Germany, France, Switzerland, the United Kingdom and the United States.

Italy has the opportunity to help its own citizens immediately, and to contribute to the progress of other nations, by asserting a very important principal in the current international framework. We must save the real economy from speculative finance with the separation of commercial banks and investment banks. This will be an initial, essential step towards re-taking control of the economy and laying the basis for a future of stability and progress.

BILL

Art. 1. (Delegation to the Government)

1. The purpose of this law is to establish the separation between commercial banks and investment banks, protecting financial activities involving deposits and credit related to the real economy, from those linked to investment and speculation on the national and international financial markets.

2. The Government shall adopt, within twelve months of the entry into effect of this law and in accordance with the principles and criteria under Article 2, one or more legislative decrees containing rules for the separation of commercial banks and investment banks, prohibiting banks that accept deposits or other funds with obligation of return from carrying out any activities linked to the trading of securities in general.

Art. 2. (Principles and Guiding Criteria)

1. The legislative decrees as per Article 1 shall comply with the following principles and guiding criteria:

a) the prohibition for commercial banks, i.e. banks that accept deposits from the general public, to carry out any activities linked to the trading and brokerage of securities, thus establishing the separation between commercial banking functions and investment banking functions;

b) the prohibition for commercial banks to hold equity stakes or establish partnerships of any kind with the following entities: merchant banks, investment banks, brokerage firms and in general all financial companies that do not accept deposits from the general public;

c) the prohibition for the representatives, directors, reference shareholders and employees of merchant banks, investment banks, brokerage firms and in general all financial companies that do not accept deposits from the general public, to hold executive positions or controlling interests in commercial banks.

Art. 3. (Opinions of the Parliamentary Commissions)

1. The drafts of the legislative decrees pursuant to Article 1(2) shall be transmitted to the chambers of Parliament by the sixtieth day prior to the expiration of the term set for the exercise of the delegation under that same Article 1(2), for the opinion of the relevant Parliamentary Commissions, to be given within forty days of the date of transmission.

Art. 4. (Entry into Effect)

1. This law shall enter into effect on the day after its publication in the Official Journal.

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